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Ethical leadership, Words of Wisdom

Prof. Qinqin Zheng of the School of Management Fudan, Fudan University, shares Part 1 of her research into how traditional Chinese wisdom may play an important part in shaping ethical leadership in China.

Power to the people

Picture, if you will, the following scenario. A major natural disaster has just struck a country causing many deaths and great damage to infrastructure and the race to search for trapped survivors is imperative. Spontaneously, the country’s big firms decide to help by donating money and resources. One of these, a star performer in high-price real estate, surprisingly makes only a token gesture. Public outcry is immense and the firm’s image, share price and customer relationship asset immediately plummet. This prompts the CEO of the real-estate firm to hastily appear in the media, offer a public apology and slap on a second donation that raises the initial sum of 2m to 100m.

Did it happen in Europe where sensitivity to ethics and corporate responsibility is high? In the USA where folk hunker together in times of crisis? Neither. In fact, it happened in Wenchuan, China, after the earthquake of 2008 with VanKe the firm involved. It is a probing example of how the traditional Chinese ethics and wisdom that have shaped a sense of community and social commitment have a say in how businesses should behave.

Qinqin Zheng, professor at Fudan School of Management and an expert on corporate ethics, researched the wider subject with her colleagues Mia Wang and Zhiqiang Li. How is ethical leadership important in China for a firm’s customer relationship and social capital – and also to what extent is the influence of traditional Chinese teachings still pertinent for Chinese business leadership?

Customers love ethical leadership

While China has experienced high-speed economic growth in the past decades, there has been increasing disclosure of immoral corporate conduct. This is paradoxically a good thing. When corruption, labour rights, product quality and safety-related issues continue to implicate Chinese firms, it means three things: that for employees and customers, unethical conduct touches a nerve-end that they rightly feel requires attention; that for the authorities, business ethics is a dimension that has to be taken seriously; and finally that ethical leadership and business ethics in China are increasingly a subject for discussion and debate among academic, government and professional circles.

It is good for business too. It has long been established that long-term customer relations are good for sustainable competitive advantage. Indeed, customer loyalty is beneficial for corporate profits. While a loyal and intimate relationship with customers is rare and difficult for rivals to replicate, it produces higher company performance and greater shareholder value. The stability of customer relationship is particularly critical in China where Guanxi – a social philosophy based on mutual obligations, reciprocity and trust that finds its origins in Confucianism – is still important. And according to Prof. Zheng, there are two factors that positively influence this customer relationship – ethical leadership and social capital.

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